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Presentation to CA League of Cities Mayors Forum 2007
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What is the purpose of affordable housing?
Families? Children? Homeless? Employers? Commuters?
Who is supposed to benefit?
VS
Is the problem permanent?
“It would be wrong to let homeowners walk away with large windfalls when there are so many others who will never have the chance to buy anything.”
“If homeowners can’t earn equity through the program it is not really homeownership”
Competing Goals
Affordability Asset Building
Some programs maintain affordability over time by limiting the wealth creation for individual homeowners.
Other programs offer unlimited wealth
creation but don’t keep units affordable
for future buyers.
Which matters more?
Preserving Affordability
Or
Building Assets?
What is fair?
Market Value: $500,000
Public Subsidy: $200,000
Affordable Price: $300,000
What should they owe when they move?
Preserving Affordability
Or
Building Assets?
Subsidy levels are too high for only one family to benefit.
Investment in housing today should create units that stay affordable for future buyers…
…without additional subsidy.
Preserving Affordability
Or
Building Assets?
Wealth matters!
Rental Housing = “Getting by”
Homeownership = “Getting ahead!”
Preserving Affordability
Or
Building Assets?
Average Family Net Worth
White $81,000
Black $ 8,000
Preserving Affordability
Or
Building Assets?
Do we really have to choose?
Monterey CountyPopulation by household income level
0.000%
1.000%
2.000%
3.000%
4.000%
5.000%
6.000%$1
0,00
0$3
0,00
0$5
0,00
0$7
0,00
0$9
0,00
0$1
10,0
00$1
30,0
00$1
50,0
00$1
70,0
00$1
90,0
00$2
10,0
00$2
30,0
00$2
50,0
00
Zillow.comApproximate price for a 1,500 Sq Ft home at each location
Monterey CountyRoughly how much can each income group afford to pay for a home?
0.000%
1.000%
2.000%
3.000%
4.000%
5.000%
6.000%
$34,
609
$103
,826
$173
,043
$242
,260
$311
,478
$380
,695
$449
,912
$519
,129
$588
,346
$657
,564
$726
,781
$795
,998
$865
,215
Where are the Blue houses?
Where are the Yellow houses?
What if there were $300,000 houses?
Something for these people to buy?
What if there were $300,000 houses?
Purchase
Price 300,000
Downpayment 15,000
Sale (10 years later)
Price 540,000
Seller's Gain 240,000
Return on Investment 32%
What do we do when there are no $300,000 houses?Local programs make green houses affordable to blue buyers.
Inclusionary or Subsidized
Homes
When a family buys a $500,000 home for only $300,000, how much should they earn when they sell?
Market Subsidized
Purchase
Price 300,000 300,000
Downpayment 15,000 15,000
Sale (10 years later)
Price 540,000 900,000
Seller's Gain 240,000 600,000
Return on Investment 32% 45%
When a family buys a $500,000 home for only $300,000, how much should they earn when they sell?
MarketShared
Appreciation
Purchase
Price 300,000 500,000
Downpayment 15,000 15,000
Sale (10 years later)
Price 540,000 900,000
Seller's Gain 240,000 240,000 60%
Return on Investment 32% 32%
Shared appreciation offers comparable wealth creation
Shared Appreciation
Affordable Price
Purchase
Price 500,000 300,000
Downpayment 15,000 15,000
Sale (10 years later)
Price 900,000 440,000
Seller's Gain 240,000 140,000
Return on Investment 32% 25%
Resale restrictions tied to incomes limit appreciation but protect affordability
Affordable Price Rental
Purchase
Price 300,000
Downpayment 15,000
Sale (10 years later)
Price 440,000
Seller's Gain 140,000 0.00
Return on Investment 25% 0%
Even restricted prices can generate life altering wealth
We don’t need to ask: Should homeowners earn equity?
We do need to ask: Will prices continue to rise – long term? How much can we afford to spend to
preserve affordability of existing homes? How much wealth should buyers earn?
Rick JacobusBurlington Associates
510-653-2995
www.rjacobus.com
